TaxTMI 
TaxTMI 
2022 (8) TMI 915
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....he following :- (i) Deduction under Section 36(1)(vii) of the Act with respect to write off of interest receivable of Rs.6,01,84,862/- forgone under the One Time Settlement ('OTS') entered into by the assessee with its borrowers and (ii) Deduction under Section 36(1)(iii) of the Act with respect to Interest expenditure of Rs.2,49,53,390/- incurred with respect to borrowings made for the slum rehabilitation project at Dindoshi. 2. Earlier, the assessee had filed its return of income for the previous year relevant to assessment year 2006-07 on 11th November, 2006. The case was selected for scrutiny and assessment order dated 28th December, 2011 came to be passed under Section 143(3) of the Act. On 18th March, 2011, the Department issued a notice under Section 263 calling upon the assessee to show cause as to why the order under Section 143(3) dated 16th December, 2008 should not be treated as erroneous and prejudicial to the interest of revenue. The assessee responded by a detailed reply, in nuce, stating that the Assessing Officer had during the original assessment proceeding enquired into various issues including the aforesaid two issues and formed an opinion a....
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....ered to tax, evidences regarding efforts made by the assessee company to recover the debts and evidences of write off of the same in the books of account." 8.1 In reply thereto, the assessee vide his letter dated 12/12/2008 submitted the details of write off and also how the income on such transaction was offered to tax. This fact is apparent from page Nos. 11, 16, 17 and 21 to 24 of the paper book. Similarly, in respect of second issue i.e. claim of interest expenditure, we noted that the Assessing Officer made the following query: "26. In case, interest expenditure is claimed, details thereof must include name of the person to whom paid, rate of interest, amount of interest, period for which paid and copy of account of such person in your books." 8.2 In reply thereto, the assessee vide his letter dated 15th September, 2008 gave the details in respect of the interest as well as drawn the addition of the Assessing Officer to Schedule-O, interest on Dinoshi Site as appearing at pages 19 & 20 of the paper book. This proves that the Assessing Officer was duly informed by the assessee during the course or hearing in respect of the loss on OTS as well as claim....
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....Officer passed the order without proper enquiry, resulting in an incorrect assumption of fact and an incorrect application of law thereby making the order of AO erroneous and also prejudicial to the interest of the revenue? B. Whether on the facts and circumstances of the case and in law, the Tribunal was justified in holding that lack of enquiry pursuant to notice u/s 142(1) amounts to inadequacy of inquiry by the A.O.?" 5. Mr. Suresh Kumar, learned counsel for the Appellant-revenue relies upon the order of the Revisional Commissioner. He draws the attention of this Court to paragraph 4 of the said order (quoted above) to submit that from the records it was observed that the assessee was never called upon to explain the loss under OTS debited to the profit and loss account under the head 'Administration & other expenses'. That the records did not contain a copy of OTS scheme under which the assessee is stated to have given concession to private developers only in respect of outstanding interest, nor any details with respect to the amount of interest receivable and written off under the OTS were found on record. He submits that the Assessing Officer in the original asse....
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....w cannot be an erroneous view prejudicial to the interest of the revenue. Learned counsel relies upon the following decisions in support of his contention:- (i) Commissioner of Income-Tax (Central), Ludhiana v/s. Max India Ltd., 295 ITR 282 (SC). (ii) Commissioner of Income-Tax v/s. M/s. Shreepati Holdings & Finance Pvt. Ltd. (supra) 9. Learned counsel for the assessee would therefore submit that the appeal deserves to be dismissed as it does not raise any substantial question of law. 10. We have heard Mr. Suresh Kumar, learned counsel for the Appellant-revenue and Mr. Nishant Thakkar, learned counsel for the assessee and with their able assistance, we have perused the papers and proceedings in the matter. 11. The Respondent assessee is engaged in the business of developers in slum rehabilitation schemes. As noted above, the Assessing Officer had pursuant to the assessment proceedings under Section 143(3) of the Act had allowed assessee's claim for deduction made by assessee, in respect of the interest of receivables of Rs.6,01,84,862/- under Section 36(1)(vii) of the Act which was forgone under the OTS entered into by the assessee with its borrowers and ....
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....144-A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General or Commissioner authorised by the Board in this behalf under Section 120; (b) "record" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject-matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Principal Commissioner or Commissioner under this subsection shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal." 13. Explanation 2 to Section 263 which was inserted by the Finance Act, 2015 with effect from 1st June,....
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....om the show cause notice of the CIT, it is apparent that the CIT(A) has treated the order to be erroneous as well as prejudicial to the interest of the Revenue as in his view the Assessing Officer has allowed excessive relief by allowing the loss of interest under OTS of Rs.6,01,84,862/- and interest on Dindoshi Site of Rs.2,49,53,390/- as revenue expenditure whereas according to him they relate to the projects under work-in- progress and were required to be capitalized. Learned counsel for the assessee has relied in this regard on certain decisions submitting that inadequacy of the inquiry according to whims and caprice does not give jurisdiction to the CIT to invoke the provisions of section 263 to set aside the assessment and that the order impugned was not a case of lack of inquiry. 16. No doubt clause (a) of Explanation 2 to Section 263 deems an order to be erroneous and prejudicial to the interest of the revenue in case the order is passed without making enquiries or verification which should have been made in the opinion of the Principal Commissioner or Commissioner. As noted, this Explanation is prospective and is applicable with effect from 1st June, 2015. In the case o....
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....made by the assessee company to recover the debts and evidences of write off of the same in the books of account." 20. It is recorded that, in reply, the assessee had vide letter dated 12th December, 2008 submitted the details of write off and how such transaction was offered to tax. The Tribunal records that these facts are apparent from page nos.11, 16, 17 and 21 to 24 of the paper book. In other words, the Assessing Officer in the 143(3) proceedings, had called for particulars of interest and considered the allowability of the amount. 21. With respect to the issue regarding claim of interest expenditure pertaining to the Dindoshi site, we observe from paragraph 8.1 of the Tribunal order that the Assessing Officer made the following query :- "26. In case, interest expenditure is claimed, details thereof must include name of the person to whom paid, rate of interest, amount of interest, period for which paid and copy of account of such person in your books." 22. The assessee in reply dated 15th September, 2008 statedly gave details of interest on Dindoshi site recorded by the Tribunal as appearing at pages 19 and 20 of the paper book. That the Dindoshi project wa....
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....ated as an order erroneous and prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law. Paragraph 2 of the said decision is apt and is quoted as under :- "2. At this stage we may clarify that under para 10 of the judgment in the case of Malabar Industrial Co. Ltd. (supra) this Court has taken the view that the phrase "prejudicial to the interest of the revenue" under section 263 has to be read in conjunction with the expression "erroneous" order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue. For example, when the Income-tar Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue, unless the view taken by the Income-tax Officer is unsustainable in law. ..." (emphasis supplied) 25. This Court in case of Commissioner of Income-Tax v/s. M/s. Shreep....
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....d raised queries and Respondent has given detailed reply means the AO has passed this order after making necessary inquiries. We agree with the view of the ITAT that the order of the AO cannot be branded as erroneous merely because the order does not contain the details which Principal Commissioner feels should have been included. The Principal Commissioner cannot decide how elaborate an order of the AO should be. Where the AO, during the scrutiny assessment proceedings, has raised a query which was answered by the Assessee to the satisfaction of the AO but the same was not reflected in the AO by him, the Commissioner cannot conclude that no proper inquiry with respect to the issue was made by the AO and enable him to assume jurisdiction under Section 263 of the Act. ..." (emphasis supplied) 27. Paragraph 7 of the decision in the case of Commissioner of Income-Tax v/s. M/s. Shreepati Holdings & Finance Pvt. Ltd. (supra) is also usefully quoted as under :- "7. Moreover the CIT in exercise of powers under Section 263 of the Act directed the Assessing Officer to redetermine the rebate allowable under Section 88E of the Act after holding that the same needs more careful ....
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....ue or capital expenditure. This argument predicates on the assessment order which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry", that such a course of action would be open...." (emphasis supplied) 30. Therefore, once the Assessing Officer has raised queries which....